Caribbean Flavours and Fragrances Limited Summary of Results For The Financial Period Ended December 31, The Board of Directors of Caribbean Flavours and Fragrances Limited are pleased to present the Audited Financial Statements for the Financial Period ending December 31,. The major highlights of the financial stewardship of the Company are highlighted below: The results are for the 18 month period ending December 31, and was driven by the changes made earlier during the year to synchronize CFF s year end with the Company s parent, Derrimon Trading Company Limited. It is also important to note that the Company s 100% remission of income taxes expired on 2 October, and as a consequence the Company s taxable profits will be subject to 50% tax remission until 2 October 2023. For this Eighteen Months (18) Financial Period, taxes were paid for three (3) months. The major financial highlight for the Eighteen (18) months period are as follows: Revenue of $674.3 million representing an increase of $263.7million or a 64.2% over the $410.6 million reported for the financial year. Gross Profit of $242.1 million representing an increase of $74.2 million or a 44.2% increase over the $167.9 million reported in. Net Profit of $115.9 million representing an increase of $33.0 million or a 39.8% increase over the $$82.9 million reported in. The continuous positive growth in net profits was driven by our ability to manage our operational expenses whilst growing revenue at a double-digit rate. Improvement in Net Working Capital by $62.2 million year over year. The earnings per share for the period increased to $1.29 per share compared to the $0.92 cents per share as reported in. A deliberate strategy to maintain sufficient inventory levels in order to better satisfy our customers requirements has allowed the Company to grow its revenues and profits. The securing of new markets for fragrances and increasing the volume of sales of flavours to existing customers and new customers in foreign markets has also contributed significantly in this regard. Based on the outlook for the coming year, it is expected that the company will continue to improve its profits whilst increasing its market share in both the domestic and overseas markets. The Board of Directors February 27, 2019
Caribbean Flavours and Fragrances Limited Financial Statements
Caribbean Flavours and Fragrances Limited Index Page Independent Auditor s Report to the Members Financial Statements Statement of Comprehensive Income 1 Statement of Financial Position 2 Statement of Cash Flows 3 Statement of Changes in Equity 4 6-36
Independent Auditor s Report To the Members of Caribbean Flavours and Fragrances Limited Report on the Audit of the Financial Statements Our Opinion We have audited the financial statements of Caribbean Flavours and Fragrances Limited ( the Company ) which comprise the statement of comprehensive income, the statement of financial position as at, the statement of cash flows and the statement of changes in equity for the 18 months period then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. In our opinion, the financial statements give a true and fair view of the financial position of the Company as at, and of its financial performance and its cash flows for the 18 months period then ended in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Jamaican Companies Act. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under these standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company within the meaning of the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code. Our Audit Approach Audit scope We designed our audit by determining materiality and assessing the risks of material misstatements in the financial statements. In particular, we considered where management made subjective judgments, for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including, among other matters for consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Independent Auditor s Report To the Members of Caribbean Flavours and Fragrances Limited Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. Key audit matters are selected from the matters communicated with the Audit Committee members (those charged with Governance) but are not intended to represent all matters that were discussed with them. These matters are addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. During the audit, we encountered no key audit matter for disclosure. Other Information Management is responsible for the other information. The other information comprises the Annual Report inclusive of the Director s, Chairman of the Board and the Chief Executive Officer Reports but does not include the financial statements and our auditor s report thereon. The Annual Report is expected to be made available to us after the date of this auditor s report. Our opinion on the financial statements does not cover the other Information, and we do not express any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information referred to above when it becomes available and, in doing so, we will consider whether the other information is materially consistent with the financial statements or whether knowledge obtained by us from the audit, or otherwise, appear to indicate any material misstatements. When we read the Annual Report, if we conclude that there are any material misstatements therein, we are required to communicate the matter to the Board of Directors. Management is responsible for the preparation of these financial statements that give a true and fair view in accordance with IFRS and the Jamaican Companies Act and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, matters relative to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or cease operations, or has no realistic alternative but to do so. The Board of Directors is responsible for overseeing the Company s financial reporting process. Caribbean Flavours and Fragrances Limited Auditor s Report
Independent Auditor s Report To the Members of Caribbean Flavours and Fragrances Limited Auditor s Responsibilities for the Audit of the Financial Statements The objectives of our audit are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit to design audit procedures that are appropriate in the circumstances, but not to express an opinion on the effectiveness of the entity s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Evaluate the overall presentation, structure, and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are not responsible for the direction, supervision, and performance of the Company. We remain solely responsible for our audit opinion. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention to our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. We communicate with the Board of Directors, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships Caribbean Flavours and Fragrances Limited Auditor s Report
Independent Auditors Report To the Members of Caribbean Flavours and Fragrances Limited Auditor s Responsibilities for the Audit of the Financial Statements (continued) and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosures about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements As required by the Jamaican Companies Act, we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for our audit. In our opinion, proper accounting records have been kept, so far as appears from our examination of those records, and the accompanying financial statements are in agreement therewith and give the information required by the Jamaican Companies Act, in the manner so required. The engagement partner on the audit resulting in this independent auditor s report is Wilfred McKenley. Chartered Accountants 27 February 2019 Kingston, Jamaica Caribbean Flavours and Fragrances Limited Auditor s Report
Caribbean Flavours and Fragrances Limited Page 1 Statement of Comprehensive Income 18 months ended Note 18 months ended 12 months ended 30 June Revenue 3 674,298 410,636 Cost of sales 5 (432,190) (242,694) Gross profit 242,108 167,942 Selling and distribution costs 5 (7,262) (6,327) Administrative expenses 5 (140,990) (88,685) Operating profit 93,856 72,930 Finance income 6 25,381 10,777 Finance cost 6 (1,152) (830) Profit before tax 118,085 82,877 Taxation 7 (2,204) - Net profit being total comprehensive income for year 115,881 82,877 Dividends paid (19,293) (28,660) Retained earnings 96,588 54,217 Earnings per share 8 $1.29 $0.92
Caribbean Flavours and Fragrances Limited Page 2 Statement of Financial Position Non-current assets Note 30 June Property, plant, and equipment 9 21,196 14,915 Current assets Inventories 10 130,862 97,218 Receivables 11 96,364 60,122 Taxation recoverable 5,999 4,823 Investments 12 154,416 131,202 Cash and cash equivalents 13 65,632 67,828 453,273 361,193 Current liabilities Payables 14 37,679 34,606 Taxation payable 2,204 - Current portion of long-term borrowings 16 2,531 2,290 42,414 36,896 Net current assets 410,859 324,297 432,055 339,212 Stockholders Equity Share capital 15 56,200 56,200 Retained earnings 370,957 274,370 427,157 330,570 Non- current liability Borrowings 16 4,898 8,642 432,055 339,212 Approved for issue by the Board of Directors on 27 February 2019 and signed on its behalf by:... Howard Mitchell Director.. Clive Nicholas Director
Caribbean Flavours and Fragrances Limited Page 3 Statement of Cash Flows 18 months ended 18 months ended 31 December 12 months ended 30 June Cash flows from operating activities: Profit for the year 115,881 82,877 Items not affecting cash: Interest income 6 (11,519) (7,968) Interest expense 6 1,152 830 Depreciation 9 7,185 3,037 112,699 78,776 Changes in operating assets and liabilities - Inventories (33,646) (25,467) Receivables (36,242) (20,676) Payables 3,073 14,865 Taxation payable 2,204 - Taxation recoverable (1,176) (358) (65,787) (31,636) Cash (used in)/provided by operating activities 46,912 47,140 Cash flows from investing activities Purchase of fixed assets 9 (13,466) (14,954) Purchase of investments (23,213) (78,400) Interest received 11,519 7,968 Net cash used in investing activities (25,160) (85,386) Cash flows from financing activities (Decrease)/Increase in loans (3,503) 10,932 Interest expense (1,152) (830) Dividends paid 18 (19,293) (28,660) Net cash used in financing activities (23,948) (18,558) Decrease in cash and cash equivalents (2,196) (56,804) Cash and cash equivalents at the beginning of year 67,828 124,632 Cash and cash equivalents at the end of year 13 65,632 67,828 Represented by: Cash on hand 51,303 30,863 Bank balances 14,329 36,965 65,632 67,828
Caribbean Flavours and Fragrances Limited Statement of Changes in Equity 18 months ended Page 4 Note Share Capital Retained Earnings Total Balance at 30 June 2015 56,200 146,082 202,282 Net Profit for 12 months ended 30 June 2015-74,070 74,070 Balance at 30 June 2016 56,200 220,152 276,352 Net profit for 12 months ended 30 June - 82,877 82,877 Dividend paid 18 - (28,660) (28,660) Balance at 30 June 56,200 274,369 330,569 Net profit for 18 months ended - 115,881 115,881 Dividend paid - (19,293) (19,293) Balance at 56,200 370,957 427,157
Caribbean Flavours and Fragrances Limited Page 5 1. IDENTIFICATION AND PRINCIPAL ACTIVITIES Caribbean Flavours and Fragrances Limited ( the Company ) is incorporated under the Companies Act of Jamaica and domiciled in Jamaica. Its principal activity is the manufacture and distribution of flavours, mainly for the beverage, baking and confectionary industries. The Company also manufactures fragrances primarily for household and general cleaning and sanitation purposes. Its registered office is located at 226 Spanish Town Road, Kingston 11. Effective 2 October 2013, Caribbean Flavours and Fragrances Limited (CFFL) shares were listed on the Junior Market of the Jamaica Stock Exchange. Subsidiary: change of accounting year end date to The Company s is a subsidiary of Derrimon Trading Company Limited (DTCL). The Company s yearend was formerly 30 June but during the year, the Company applied to Tax Administration Jamaica (TAJ) to change its year end to to align with that of its parent company, DTCL. Tax Administration Jamaica by letter dated 26 June, approved the change to pursuant to Section 6 of the Income Tax Act. DTCL is the registered holder of 62.02% of the issued capital of CFFL. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation Statement of compliance The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied for all the years presented, unless otherwise stated. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and have been prepared under the historical cost convention as modified by the revaluation of certain fixed assets. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed herein.
Caribbean Flavours and Fragrances Limited Page 6 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of preparation Revenues and expenses Revenues and expenses are recorded on the accrual basis, whereby transactions and events are recognized in the period in which the transactions and events occur, regardless of whether there has been a receipt or payment of cash or its equivalent Functional and presentation currency The financial statements are presented in Jamaican dollars (JA$), the company s functional currency. Judgments and estimates The preparation of the financial statements in accordance with IFRS requires Management to make judgments and estimates that affect: The application of accounting policies; The reported amounts of assets and liabilities; Disclosures of contingent assets and liabilities; and The reported amounts of revenue and expenses during the reporting periods. Actual results may differ from estimates made in the financial statements. Judgments are made in the selection and assessment of the Company s accounting policies. Estimates are used mainly in determining the measurement of recognized transactions and balances. Estimates are based on historical experience, and other factors, including expectations of future events, believed to be reasonable under the circumstances. Judgments and estimates are interrelated. The Management s judgments and estimates are continually re-evaluated to ensure they remain appropriate. Revision to accounting estimates is recognized in the period in which the estimates are revised and in the future periods affected. The following are the accounting policies that are subject to judgments and estimates that the Management believes could have the most significant impact on the amounts recognized in the financial statements. Inventories Estimation Inventories are carried at the lower of cost and net realized value. The estimation of net realized value is based on the most reliable evidence available, at the time the estimates are made, of the amount the inventories are expected to realize. Additionally, estimation is required for inventory provision due to shrinkage, slow-moving and obsolescence. It is possible, based on existing knowledge, that outcomes within the next financial year that are different from those assumptions could require a material adjustment to the carrying amount reflected in the financial statements.
Caribbean Flavours and Fragrances Limited Page 7 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of preparation (continued) Judgments and estimates (continued) Income and other taxes Judgment Income and other taxes are subject to Government policies. In calculating current and recoverable income and other taxes, Management uses judgment when interpreting the tax rules and in determining the tax position. There are some transactions and events for which the ultimate tax determination is uncertain during the ordinary course of business. Estimation Income and other taxes are subject to Government policies, and estimates are required in determining the provision. Management recognizes liabilities for possible tax issues based on estimates of whether additional taxes may be due. Allowance for impairment losses on receivables Estimation Management s estimate of allowance on accounts receivable is based on analysis of the Aged Receivables and historical experience with delinquency and default. Default rates and the allowance amount are regularly reviewed against the actual outcomes to ensure that they remain appropriate. Management also makes estimates of the likely estimated future cash flows from impaired receivables which may be materially different in the subsequent financial year. Others Estimation Other estimates include determining the useful lives of plant, property and equipment (PPE) for depreciation in accounting for and measuring payables and accruals and in measuring fair values of financial instruments. Standards, interpretations, and amendments to published standards effective in the current year. Certain amendments and clarifications to existing standards have been published that became effective during the current financial year. The Company has assessed the relevance of all such new amendments and clarifications and where applicable, have implemented the standard. Amendments to IAS 7, Statement of Cash Flows effective for annual periods beginning on or after 1 January. The amendment introduces an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the IASB s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. An entity is required to disclose information that will allow users to understand changes in liabilities arising from financing activities. This includes changes arising from cash flows, such as draw-downs and repayments of borrowings and non-cash changes, such as acquisitions, disposals, and unrealised exchange differences. The Company has provided the relevant disclosures in note 16, borrowings. Amendments to IAS 12, Income Taxes, effective for annual periods beginning on or after 1 January. The IASB published amendments to IAS 12, specifically clarifying how to account for deferred tax assets in general by adding examples and elaborating on some of the requirements in more detail. The amendments do not change the underlying principles for the recognition of deferred tax assets.
Caribbean Flavours and Fragrances Limited Page 8 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of preparation (continued) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company The following new standards, amendments, and interpretations have been issued and may impact the financial statements, but have not been early adopted by the Company. The Company has assessed the relevance of all such standards, interpretations and amendments and has determined that the following may be relevant to its operations. Unless stated otherwise, the impact of the changes is still being assessed by the management of the Company. IFRS 9 Financial Instruments, which is effective for accounting periods beginning on or after 1 January. In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments, which brings together the classification and measurement, impairment and hedge-accounting phases of the IASB s project to replace IAS 39 Financial Instrument: Recognition and Measurement. IFRS 9 principal focus includes revised guidance on the classification and measurement of financial assets and liabilities, including a new expected credit loss model for calculating impairment of financial assets; and new disclosure requirements about expected credit loss and credit risk. For hedge accounting The new general hedge accounting model more closely aligns hedge accounting with risk management activities undertaken by entities when hedging their financial and non-financial risk exposures. Management, based on its overall assessment of the effects of applying this new standard does not expect it to have any significant impact on the company s financial statements. IFRS 15, Revenue from Contracts with Customers, effective for accounting periods beginning on or after 1 January. In May 2014, the IASB issued IFRS 15 Revenue from contracts with customers, which replace IAS 11 Construction contracts, IAS 18 Revenue and International Financial Reporting Interpretation Committee ( IFRIC ) 13 Customer loyalty program (IFRIC 13), as well as various other interpretations regarding revenue. IFRS 15 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, except for contracts that are within the scope of the standards on leases, insurance contracts, and financial instruments. It also contains enhanced disclosure requirements. The standard deals with revenue recognition and establish principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. Management does not expect it to have any significant impact on the company s financial statements
Caribbean Flavours and Fragrances Limited Page 9 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of preparation (continued) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company (continued) Amendments to IFRS 15, Revenue from contracts with customers, effective for annual periods beginning on or after 1 January. This amendment comprises clarifications of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment as it relates to presenting gross versus net revenue. Management is assessing the impact but does not expect it to have any significant impact on the company s financial statements IFRS 16 leases,' which is effective for accounting periods beginning on or after 1 January 2019. This standard replaces the current guidance in IAS 17. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a right-of-use,' for virtually all lease contracts. The standard includes an optional exemption for certain short-term leases and leases of low-value assets. Amendments to IAS 19, Employee benefits on plan amendment, curtailment or settlement, effective for annual period beginning on or after 1 January 2019. Management has no intention of implementing an employment benefit scheme and therefore this amendment will have no impact on the financial statements when it becomes applicable Amendments to IAS 40. Investment property relating to transfer of investment property, effective for annul periods beginning on or after 1 January. These amendments clarify that to transfer to, or from, investment properties there must be change in use. To conclude, if a property has changed used, there should be an assessment of whether the property meets the definition. IFRIC 22 Foreign currency transactions and advance consideration,' effective for annual periods beginning on or after 1 January. This IFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payment/receipt are made. The guidance aims to reduce diversity in practice. It does not apply if the consideration received or paid at a later date other than the date of initial recognition of the non-monetary asset or non-monetary liability. also, the interpretation need not to be applied to income taxes, insurance contracts or reinsurance contracts. IFRIC 23, Uncertainty over income tax treatments, effective for annual periods beginning on or after 1 January 2019. This IFRIC amendment clarifies how the recognition and measurement requirements of IAS 12, Income Taxes are applied where there is uncertainty over income tax treatments. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether the treatment will be accepted by the tax authority.
Caribbean Flavours and Fragrances Limited Page 10 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of preparation (continued) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company (continued) Annual Improvements to IFRSs2014-2016 cycles. The amendments to IAS 28, Investment in associates and joint ventures, effective for annual periods beginning on or after 1 January, clarifies that the election by venture capital organizations, mutual funds, unit trusts and similar entities to measure investments in associates or joint venture at fair value through profit or loss should be made separately for each associate or joint venture at initial recognition. There was no significant impact of adopting this amendment because the Company made no acquisition or entered into any joint arrangement during the year. Annual Improvements to IFRS 2015- Cycle Amendments to IFRS, IAS 12 and IAS 23, effective for annual periods beginning on or after 1 January 2019. The amendment to IFRIS 3 clarifies how a company re-measures its previously held interest in a joint operation when it obtains control of a business. The amendments to IAS 12 clarify that all income tax consequences of dividends should be recognised in profit or loss, regardless how the tax arises. The amendment to IAS 32 clarifies that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings. There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a material impact on the operations of the Company. The Company is assessing the likely impact of future adoption of these likely changes and other IFRS or IFRIC interpretations that are not yet effective and has determined that these standards are not expected to have any material impact on the accounting policies or financial disclosures of the Company.
Caribbean Flavours and Fragrances Limited Page 11 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Functional and presentation currency The financial statements are presented in Jamaican dollars, which is the Company s functional currency. All financial information presented has been rounded to the nearest thousand dollars, unless otherwise indicated. (c) Foreign currency translation Transactions in foreign currencies are translated into Jamaican dollars at rates in effect at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated into Jamaican dollars at the closing exchange rate at the statement of financial position date. Non-monetary assets and liabilities in foreign currencies that are measured in terms of historical cost are translated into Jamaican dollars at the exchange rate in effect at the date of the transaction or initial recognition. Non-monetary items in foreign currencies that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. Exchange gains and losses arising from translation are included in profit or loss. Exchange rates are determined by the published weighted average rate at which commercial banks trade in foreign exchanges. (d) Financial instruments recognition and measurement A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial assets and financial liabilities are recognized in the statement of financial position when the Company becomes a party to the contractual provisions of a financial instrument. All financial instruments are required to be measured at fair value on initial recognition. Subsequent measurement of these assets and liabilities is based on fair value or amortized cost using the effective interest method. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, except those classified as fair value through profit or loss ( FVTPL ), are added to or deducted from the fair value of the financial assets and financial liabilities, as appropriate, on initial recognition. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities classified as fair value through profit or loss are recognized immediately in net income. The Company classifies financial instruments, at the time of initial recognition, according to their characteristic and management s choice and intentions related to it for ongoing measurement. Classification choices for financial assets include: a. FVTPL b. Held-to-maturity investments c. Available-for-sale, and d. Loans and receivables Financial instruments are classified as FVTPL when the instrument is either held for trading or designed as such upon initial recognition. Financial instruments are classified as held for trading.
Caribbean Flavours and Fragrances Limited Page 12 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Financial instruments recognition and measurement (continued) if acquired principally to sell shortly or if part of an identified portfolio of financial instruments that the Company manages together and has a recent actual pattern of short-term profit making. Fair value through profit or loss Financial instruments classified as FVTPL are measured at fair value, with changes in fair value recorded in net income in the period in which they arise. Held-to-maturity investments Financial assets are classified as held-to-maturity investments on initial recognition when the entity has a positive intention and ability to hold to maturity. These financial assets have fixed or determinable payments and fixed maturity. After initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method, less any impairment, with gains and losses recognized in net income in the period that the asset is derecognized or impaired. Available-for-sale Financial assets classified as available-for-sale, are measured at fair value with changes in fair value recognized in Other Comprehensive Income ( OCI ) until realized through disposal or other than temporary impairment, at which point the change in fair value is recognized in net income. Dividend income from available-for-sale financial assets is recognized in net income when the Company s right to receive payments is established. Interest income on available-for-sale financial assets, calculated using the effective interest rate method, is recognized in net income. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method, less any impairment, with gains and losses recognized in net income in the period that the asset is de-recognized or impaired. Other liabilities After initial recognition, other financial liabilities are measured at amortized cost using the effective interest rate method, less any impairment, with gains and losses recognized in net income in the period that the liability is derecognized. De-recognition of financial instruments A financial asset is derecognized when the contractual rights to the cash flow from the assets expire or when the Company transfers the financial asset to another party without retaining control or substantially all the risks and rewards of ownership of the asset. Any interest in transferred financial assets created or retained by the Company is recognized as a separate asset or liability. A financial liability is derecognized when the contractual obligations are discharged, canceled or expire.
Caribbean Flavours and Fragrances Limited Page 13 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation. Depreciation on assets under construction does not commence until they are complete and available for use. Depreciation on all other property, plant and equipment is calculated on the straight-line basis at annual rates estimated to write-off the carrying value of the assets over the period of their estimated useful lives. The land is not depreciated. The annual rates are as follows: - Leasehold property & improvements 10% Buildings 2 1/2% Plant and machinery, furniture and fixtures, office equipment 10% Computer equipment 33 1/3% Motor vehicles 25% (f) The assets residual values and useful life are reviewed periodically for impairment. Where an asset s carrying amount is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds with the carrying amount and are recognized in other income in the statement of comprehensive income. Repairs and maintenance expenditure are charged to statement of comprehensive income during the financial period in which they are incurred. Inventories Inventories are valued at the lower of cost, determined principally on a weighted average cost basis and fair value less costs to sell. Cost, where applicable, is determined as follows: Finished goods: costs of the product, plus all indirect costs, such as labour and appropriate allocations for overhead expenses, to bring the product to a saleable condition. Work-in-progress: cost of product, labour plus appropriate allocations for overhead expenses. Goods-in-transit: cost of goods translated at the year- end exchange rate. (g) Trade receivables Trade and other receivables are carried at anticipated realizable value. An allowance for impairment of trade and other receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in bad debt expense in the statement of comprehensive income. When a trade receivable is deemed uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognized as recovery and (credited to bad debt expense in the statement of comprehensive income.
Caribbean Flavours and Fragrances Limited Page 14 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Dividends Dividends on ordinary shares are recognized in stockholder s equity in the period in which they become legally payable. Interim dividends are due when declared and approved by the directors while final dividends are approved by shareholders at the Annual General Meeting. Dividends for the year that are declared after the reporting date are disclosed in the subsequent events note. (i) Trade and other payables Trade payables are obligations of the Company for goods or services acquired in the ordinary course of business from vendors and suppliers and are stated at cost. (j) Current and deferred Income taxes Current Current tax charges are based on taxable profits for the year, which differ from the profit before tax reported because taxable profits exclude items that are taxable or deductible in other years and items that are never taxable or deductible. The Company s liability for current tax is calculated at tax rates that have been enacted at the reporting date. Deferred tax Deferred tax is the tax that is expected to be paid or recovered on the differences between the carrying amounts of assets and liabilities and the corresponding tax bases. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax is charged or credited to statement of income, except where it relates to items charged or credited to other comprehensive income or equity, in which case deferred tax is also dealt with in other comprehensive income or equity. Effective 3 October, the 100% tax remission status of the Company expired under the Junior Market tax incentive agreement. The Company is now subject to 50% tax remission of Income Taxes for the next 5 years to 2 October 2023. Deferred taxation was accounted for during the period ended.
Caribbean Flavours and Fragrances Limited Page 15 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Cash and cash equivalents Cash and cash equivalents are carried at the statement of financial position date at cost. For the cash flow statement, cash and cash equivalents comprise cash at bank and in hand and shortterm deposits with original maturities of three months or less, net of any bank overdraft. (l) Employee benefits (i) Employee benefits include current or short-term benefits such as salaries, statutory contributions paid, annual vacation and sick leave and non-monetary benefits such as medical care. Entitlement to annual leave and other benefits are recognized when they accrue to employees. (ii) The Company does not operate a pension scheme (iii) The Company does not have a formal profit-sharing or bonus plan in place for permanent employees. (m) Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Company expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Where there are some similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as an interest expense. (n) Debt: borrowing cost and interest Debt is classified as current when the Company expects to settle the liability in its normal operating cycle, it holds the liability primarily for trading, the liability is due to be settled within 12 months after the date of the statement of financial position, or it does not have an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position; otherwise, it is classified as long-term. After initial recognition, debt is measured at amortized cost using the effective interest rate method, less any impairment, with gains and losses recognized in net income in the period that the liability is derecognized. Bank and other borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost. All other borrowing costs are recognized in the statement of comprehensive income in the period in which they are incurred.
Caribbean Flavours and Fragrances Limited Page 16 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Earnings per share The earnings per share are computed by dividing the profit attributable to the ordinary shareholders by the number of ordinary shares issued. (p) Share Capital Ordinary shares are classified as equity. Incremental costs directly attributed to the issue of ordinary shares are recognized as a deduction from equity. (q) Impairment of non-current assets Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the assets exceeds its recoverable amount, which is the greater of an asset s net selling price and value in use. To assess impairment, assets are grouped at the lowest levels for which there are separately identical cash flows. Calculation of recoverable amount and reversal of impairment An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation. Such reversal is recognized in the income statement unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. (r) Segment reporting An operating segment is a component of a company that engages in business activities from which it may earn revenues and incur expenses. The entity s Chief Operation Decision Maker (CODM) also regularly reviews the operating results to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Based on the information presented to and reviewed by the CODM, the entire operations of the Company are considered as one operating segment.
Caribbean Flavours and Fragrances Limited Page 17 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Related parties A related party is a person or entity that is related to the entity that is preparing the financial statements; referred to in IAS 24 Related Party Disclosures as the reporting entity. (a) A person or a close member of that person s family is related to a reporting entity if that person: (i) (ii) (iii) Has control or joint control over the reporting entity; Has significant influence over the reporting entity; or Is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. (b) An entity is related to a reporting entity if any of the following conditions apply: (i) The entity and the reporting entity are members of the same group. (ii) One entity is an associate or joint venture of the other entity. (iii) Both entities are joint ventures of the same third party (iv) One entity is a joint venture of a third entity, and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan for the benefit of the employees of either the reporting entity or an entity related to the reporting entity. (vi) The entity is controlled or jointly controlled by a person identified in (a) above. (vii) A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity. A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged. (t) Comparative balances When necessary, comparative figures are reclassified to conform to the changes in presentation in the current year. However, the comparative profit or loss figures relate to transactions for the year ended June 30, 2016 while the current figures cover the 18-month period from 1 July to 31 December. The current statement of financial position is at while the comparative statement of financial position is as at June 30,. The Company s year-end was changed from 30 June to to align with that of its parent company to facilitate consolidating the company s results with its parent Company.